Right-Wing Media's Faulty Tax Reform Premise
Tax Expert: Calls For Revenue Neutral Tax Reform "Incoherent"
Blog ››› ››› ALBERT KLEINE
Right-wing media outlets are promoting the fallacious premise that any attempts at tax reform must be revenue neutral, an idea that tax policy experts wholly reject.
On July 25, The Hill reported that Senate Majority Leader Harry Reid (D-NV) would not be involved in the tax reform process set up by Sens. Max Baucus (D-MT) and Orrin Hatch (R-UT). According to the report, Reid suggested that, while he would not be personally involved in the process, "raising nearly $1 trillion in revenue should be the starting point for any tax reform negotiations."
Responding to Reid's call for additional revenue from tax reform, The Wall Street Journal ran an editorial that suggested true tax reform must be revenue neutral:
Democrats swear they support something they call "tax reform," but until the Obama Presidency that has always meant trading lower rates for fewer loopholes.
The Journal's premise that any attempts at tax reform must inherently be revenue neutral was quickly parroted on Fox News. On the July 26 edition of Fox & Friends, Fox Business host Stuart Varney said Reid has "destroyed tax reform" and claimed "tax reform has always meant lower rates, fewer deductions."
Varney returned to this false "tax reform" narrative on Fox Business' Varney & Co. In an interview with right-wing tax opponent Grover Norquist, president of Americans for Tax Reform, Norquist stated, "as long as Harry Reid is the leader of the Senate there will be no tax reform. He wants a tax increase, instead of tax reform."
Conservative media's notion that tax reform must be revenue neutral is directly contradicted by experts.
In email correspondence with Media Matters, Pulitzer Prize-winning journalist and tax expert David Cay Johnston dismissed the premise that tax reform must be revenue neutral, claiming that the term is politically loaded:
On the amount, revenue neutral is code for cut benefits for the many. It is also code for cutting investments that grow our wealth or sustain it -- infrastructure, research and education among the examples.
For decades we have taxed less than we spend.
Calling for revenue neutral changes while decrying red ink budgets is incoherent.
Johnston's comments are in line with how other experts have addressed the idea that tax reform must not raise additional revenue. Thomas Hungerford, senior director of tax and budget policy at the Economic Policy Institute, told Media Matters:
The bottom line is: there are no economic reasons for tax reform to be revenue neutral. Given the longer-term fiscal situation I think arguing that tax reform needs to be revenue neutral defies common sense.
Beyond the idea that tax reform does not imply revenue neutrality, right-wing media are ignoring a number of important facts, particularly that additional revenue is needed.
According to Andrew Fieldhouse, a federal budget policy analyst at the Economic Policy Institute, revenue neutral tax reform is based on a number of myths, namely that higher taxes impede economic growth and cannot raise revenue. Fieldhouse claims that reliance on these myths to push for revenue neutral tax reform obscures the need for additional revenue and reducing income inequality:
The dual challenges of addressing long-term fiscal sustainability and marked income inequality growth necessitate that reforms raise more revenue and restore diminished progressivity of the tax code, rendering 1986-style reform unviable. Short of reneging on the nation's commitments to ensuring health care for the elderly, poor, and disabled, Congress must realistically raise substantially more revenue than projected under current policy -- an outlook largely shaped by the Bush-era tax cuts and essentially unchanged by the lame-duck budget deal.
The Center on Budget and Policy Priorities claims that pushing for revenue neutral tax reform could set a dangerous precedent for fiscal policy, "effectively tak[ing] revenue off the table for deficit reduction for years to come." CBPP further argues that revenue neutral tax reform that seeks to lower tax rates in exchange for eliminating deductions could set in motion regressive tax policy.